Learn to Own Up for Engagement
May 15, 2008
Sure, your company is important to your employees—you're their meal and rent ticket. But for a more engaged workforce, one that actually cares about your output to customers or clients, employees need to take ownership of their jobs—literally.
By J. Robert Beyster
There is a crisis in American business. This crisis isn't financial in nature—it has nothing to do with the recent credit crunch, or with rising unemployment or inflation. Indeed, while this crisis is hobbling businesses in every industry, and in every state of the country, it is under the radar of most business leaders. The crisis is lack of employee engagement. In a recent survey of American companies, the Gallup Organization found only 29 percent of American workers—less than one-third—are engaged in their jobs, meaning they work with passion and feel a profound connection to their company, while 54 percent say they are not engaged in their jobs. Even worse, the remaining 17 percent of American workers—almost one in five—are actively disengaged.
If this were not a significant enough problem, there is another crisis looming over the horizon. In the next 10 years, 32 million jobs will be vacated and 20 million new jobs will be created. This means 52 million workers are going to be needed to fill projected job vacancies. However, the projected labor force availability will only be 29 million, leaving a 23 million job gap. At least 50 percent of executives in the U.S. will be eligible to retire in the next five years. You might think, "That's okay, we'll just promote the people in the next positions to take their place." The problem is many of the people in the second, third, and fourth positions also are Baby Boomers.
These statistics show us future organizational vitality is dependent on the ability to attract, recruit, and retain employees. To do so, it's more important than ever for business owners and managers to ensure their companies are rewarding places to work. The traditional American strengths of innovation and entrepreneurial vigor continue to provide significant advantages in the competition to develop and market new technologies. However, to be competitive over the long run, companies must reinforce these strengths with flexible organizational structures that give employees freedom to make decisions and have a real impact on day-to-day operations.
TIme to Own Up
One answer to these looming issues is employee ownership—sharing the ownership of businesses broadly with the employees who create their products, deliver their services, and dedicate their working lives to the businesses in which they are employed. Employee ownership is just one response to the challenge of improving American competitiveness, but one that creates the environment for changes to flourish.
Most studies on employee ownership, and its impact on employees and organizations, show a distinct, positive correlation between employee ownership and performance:
• In a review of employee ownership studies for the National Bureau for Economic Research (NBER), Joseph Blasi and Douglas Kruse of Rutgers University reported, on average, companies with significant employee ownership had better economic performance.
• A U.S. General Accounting Office study of 110 American firms found participatively managed, employee-owned companies increased their productivity growth rate by an average 52 percent per year.
• A study of 45 employee stock ownership plans (ESOP) and 225 non-ESOP companies conducted by the National Center for Employee Ownership (NCEO) reveals companies that combine employee ownership with a culture of participative management grow 8 percent to 11 percent faster than those without such plans.
Combining employee ownership with participation in decision-making has an even greater impact on employee engagement, motivation, and—ultimately—performance. In the report entitled "Employee Ownership and Corporate Performance," business researchers Michael Quarrey and Corey Rosen concluded, "When employee ownership is combined with extensive opportunities for employees to participate in decisions affecting their jobs, there is a substantial and positive impact on performance."
This approach clearly worked for SAIC which, at least partly as a result of our ownership culture, became one of the most successful employee-owned companies in the United States, with 38-straight years of revenue growth and an annualized compounded growth rate in the stock price of 34 percent. An employee who was awarded just $100 in SAIC stock in 1969 would have more than $3.5 million today. Employee ownership also worked for companies as diverse as furniture manufacturer Herman Miller, Inc., supermarket chain Publix Super Markets, package delivery company United Parcel Service (UPS), and engineering and construction contractor CH2M HILL.
Ownership Advantages
Employee ownership offers unique advantages to organizations that adopt it. At SAIC, these were some of the most important:
• A focus on long-term goals.
• Employee ownership helped insulate SAIC from outside shareholders who had no direct ties to the company.
• Helps attract and retain a superior workforce for decentralized growth. SAIC enjoyed greater freedom to use stock ownership to maintain a highly decentralized and entrepreneurial corporate culture and to preserve a focus on individual effort and initiative.
• Facilitates alignment of corporate constituencies. At SAIC, the roles and interests of owners, employees, and managers were more mutually supportive and overlapping than in traditional corporations that often experience a divide between executive management and the majority of the workforce with no ownership stake.
• Promotes adaptability to maintain customer focus. The company's performance-based ownership incentives encouraged SAIC's employee-owners to maintain a customer-driven focus.
• Unleashes the entrepreneurial spirit in workers. SAIC's employee-owners treated the business as if it was their own, and made a point of constantly gauging customer satisfaction.
• Dissatisfied customers can easily result in lost business, and lost business can result in decreased stock value. Ownership encouraged SAIC's employees to do the right thing for customers, colleagues, and the company.
Here's a simple formula that works exceedingly well: Hire very smart people, encourage their entrepreneurial spirit, let them focus on customers, and reward them for their contributions. I am convinced our system of employee ownership was an essential factor in our rapid growth and long-term success. In these turbulent economic times, it's more important than ever for leaders to find ways to gain a competitive advantage in the marketplace—and find them now. As the old saying goes, "He who hesitates is lost." We cannot afford to wait—the American economic downdraft is accelerating, and many companies will fall by the wayside as competition for a shrinking base of consumers gets increasingly fierce.
Employee ownership is the right answer, and the time to do it is right now.
Sidebar: Making Employee Ownership Work
There are three things leaders can do to make employee ownership work in nearly any business.
First, create an incentive and stock ownership system that rewards employees for good performance. This system could include stock awards, cash awards, stock options, and direct purchase of company stock, along with a system to distribute the rewards in an equitable way and a means to provide liquidity to those who need it.
Second, allow your managers freedom of action to run their businesses with as much independence as possible, subject to strict financial and ethical controls. As long as your managers are hitting their financial targets, and following the rules, stay out of their way.
Third, find non-financial ways to motivate employees. At SAIC, we extensively used titles, face time with upper managers and board members, participation in company policy development, committee work, participation in outside professional organizations, and awards for technical and administrative excellence to motivate employees. It's about more than cash.
Dr. J. Robert Beyster (La Jolla, CA) is the founder of Science Applications International Corporation (SAIC) and co-author with Peter Economy of "The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company." Beyster promotes innovation and employee ownership through his Foundation for Enterprise Development and the Beyster Institute at the Rady School of Management, University of California San Diego.
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